Companies need to gear up for a new era in international taxation that might require them to report their activity on a country-by country basis, KPMG Malta's tax advisor Kadambari Chari said during a seminar in Malta in association with the Malta Remote Gaming Council (MRGC). Shedding light on the OECD’s measures on Base Erosion and Profit Shifting (BEPS), Chari predicted that there will be a “very different tax world in the near future” as tax laws are becoming more complex. KPMG urged companies to review their financial models in order to prepare for a new tax reporting landscape.
Biggest changes for more than 50 years
Designed to reform the international tax system and tackle tax avoidance, the OECD has compiled a comprehensive package of 15 main action points in order to “harmonise” tax regulations worldwide. However, KPMG Malta partner Juanita Brockdorff said that they have in fact, made things a lot more complicated. The changes prove to be the biggest for more than 50 years, as global tax authorities estimate they are losing more than 240 billion US dollars each year due to base erosion and tax diversion.
One of the measures states that Multinational Enterprises (MNE’s) with more than €750 million group turnover will need to pay taxes in the countries where profits are made. The OECD estimates that the measure will affect some 9,000 companies globally. Tax advisor Chari highlighted that if companies are operating in the UK for example, they need to declare this, and pay tax on the profit they earn there. iGaming companies especially need to check the extended Permanent Establishment (PE) definition in order to determine whether or not they are going to be affected. iGaming companies need to bear in mind where their chief staff such as Chief Financial Officers and Chief Executive Officers are based when making decisions, since the new regulations will particularly affect those companies operating across borders.
Pro-active approach recommended
In relation to Diverted Profits Tax (DPT) in the UK, HMRC are looking to see that companies have economic substance within all jurisdictions that they are operating in, and if there is limited substance this will be alarming, Tom Lobb, KPMG UK director, added. Tax authorities are permitted to investigate company’s tax history for up to 6 years and penalise for tax evasion. KPMG are advising companies within the sector to be pro-active and mindful. There are of course exemptions to the recommendations, but KPMG warned companies not to assume these exemptions will apply to them.
While the BEPS measures are a set of recommendations rather than rules, and implementation will vary between countries, Brockdorff stressed that “the fundamental principal will remain the same: where is the company based?” She said that the OECD’s 15 action points were aimed at transparency, and should be seen as a positive incentive that could be the next innovative step for Malta. “Companies will need a more concrete block here and stronger links, therefore bringing more quality FDI to the island,” she said.